Federal subsidies meant to encourage hiring of disadvantaged workers such as the Work Opportunity Tax Credit (WOTC) often provide large windfalls to employers in low-wage, high-turnover industries without creating any net new jobs or changing who they hire. Ms. Lower-Basch recommends that deeper, more targeted subsidies administered at the state level are a more effective way to encourage employers to hire disadvantaged workers and create jobs.

Rethinking Work Opportunitypresents an alternative approach to tax creditsbased on state and local experiences operating subsidized jobs programs in recent years. Most recently, the Temporary Assistance for Needy Families (TANF) Emergency Contingency Fund (also known as the Emergency Fund) enabled states to operate flexible, targeted job programs that subsidized wages for businesses hiring unemployed low-income workers. From 2009 to 2010, this program placed more than 260,000 low-income individuals in subsidized jobs at a total federal cost of $1.32 billion. States could choose whether to target long-term unemployed workers, welfare recipients, or other populations. In contrast, the WOTC allows any for-profit employer to claim a credit for hiring members of certain eligible groups. In 2010, WOTC cost $1.1 billion, with no evidence that it promoted net job creation or changed employers' hiring choices or practices.

Despite widespread and bipartisan support from participating employers, workers, and states, the TANF Emergency Fund expired in 2010, forcing many states to shut down or scale back dramatically their subsidized employment programs. Such programs are still eligible uses of TANF dollars, but given the high levels of need in states and the wide variety of competing uses, it is likely that these programs will serve only modestly more people in 2011 than they did prior to the Recovery Act.

The Pathways Back to Work Fund, part of President Obama's American Jobs Act, would provide $2 billion for subsidized employment programs modeled on those operated under the Emergency Fund. CLASP strongly supports this provision. However, even when the economy recovers, disadvantaged workers will still need help connecting to employment. Redirecting funds from the WOTC could provide ongoing funding to support successful subsidized jobs programs.